Office of Public Sector Information
PART IV continued CHAPTER II continued
(7) Where the currency option in question is such an option by virtue of section 150(8) above, subsections (4) and (5) above shall be construed as if—
(a) any reference to an option being exercisable by any person were a reference to a contract subject to a condition precedent the fulfilment of which would result in a transfer of value to that person, and
(b) any reference to an option being exercisable against any person were a reference to a contract subject to a condition precedent the fulfilment of which would result in a transfer of value by that person.
(8) For the purposes of subsection (7) above there is a transfer of value to or by any person if, immediately after the fulfilment of the condition, the value of that person’s net assets is more or, as the case may be, less than it would have been but for the fulfilment of the condition.
(9) Any reference in subsection (8) above to the value of a person’s net assets being more or less than it would have been but for the fulfilment of the condition includes a reference to the value of that person’s net liabilities being less or, as the case may be, more than it would have been but for the fulfilment of the condition.
(10) In this section “associated company” shall be construed in accordance with section 416 of the Taxes Act 1988 and any reference to a currency option is a reference to one which is a qualifying contract.
(1) Subsections (2) to (5) below apply where, as regards a qualifying contract and an accounting period, a qualifying company’s profit or loss is computed on a basis of accounting (the new basis) other than that adopted for the immediately preceding accounting period.
(2) There shall be added to amount A an amount equal to any amount, or the aggregate of any amounts—
(a) which have not been included in amount A for a preceding accounting period, and
(b) which would have been so included if the new basis had been adopted for that period.
(3) There shall be deducted from amount A or, as the case may require, added to amount B an amount equal to any amount, or the aggregate of any amounts—
(a) which have been included in amount A for a preceding accounting period, and
(b) which would not have been so included if the new basis had been adopted for that period.
(4) There shall be added to amount B an amount equal to any amount, or the aggregate of any amounts—
(a) which have not been included in amount B for a preceding accounting period, and
(b) which would have been so included if the new basis had been adopted for that period.
(5) There shall be deducted from amount B or, as the case may require, added to amount A an amount equal to any amount, or the aggregate of any amounts—
(a) which have been included in amount B for a preceding accounting period, and
(b) which would not have been so included if the new basis had been adopted for that period.
(6) Subject to subsection (7) below, subsections (2) to (5) above also apply where a contract or option becomes a qualifying contract by virtue of section 147(2) or 148(2) or (3) above at the beginning of the first day of an accounting period of a qualifying company.
(7) Where subsections (2) to (5) above apply by virtue of subsection (6) above, they shall have effect as if—
(a) any reference to the new basis were a reference to the basis of accounting on which, as regards the qualifying contract, the company’s profit or loss for the accounting period is calculated,
(b) any reference to being or not being included in amount A for a preceding accounting period were a reference to being or not being taken into account as receipts or increases in value in computing the company’s profits or losses for such a period, and
(c) any reference to being or not being included in amount B for a preceding accounting period were a reference to being or not being taken into account as deductions or reductions in value in computing the company’s profits or losses for such a period.
(1) Subsections (2) and (3) below apply where—
(a) as regards a qualifying contract a profit or loss accrues to a qualifying company for an accounting period, and
(b) the qualifying contract was at any time in the period held by the company for the purposes of a trade or part of a trade carried on by it.
(2) If throughout the accounting period the qualifying contract was held by the company solely for the purposes of the trade or part, the whole of the profit or loss shall be treated for the purposes of the Tax Acts as a profit or loss of the trade or part for the period.
(3) In any other case the profit or loss shall be apportioned on a just and reasonable basis and so much as is attributable to the trade or part shall be treated for the purposes of the Tax Acts as a profit or loss of the trade or part for the period.
(4) The preceding provisions of this section apply notwithstanding anything in section 74 of the Taxes Act 1988 (general rules as to deductions not allowable).
(1) In a case where—
(a) as regards a qualifying contract a profit or loss accrues to a qualifying company for an accounting period, and
(b) the whole or part of the profit or loss does not fall to be treated for the purposes of the Tax Acts as a profit or loss of a trade or part of a trade for the period,
the whole or part (as the case may be) shall be treated for the purposes of this section as a non-trading profit or loss of the company for the period.
(2) Subsections (5), (6) and (9) of section 129 and sections 130 to 133 of the [1993 c. 34.] Finance Act 1993 (non-trading exchange gains and losses) shall have effect as if—
(a) any reference to an amount which a company is treated as receiving in an accounting period by virtue of section 129 included a reference to an amount equal to any non-trading profit of the company for the period, and
(b) any reference to a loss which a company is treated as incurring in an accounting period by virtue of that section included a reference to an amount equal to any non-trading loss of the company for the period;
and (unless the contrary intention appears) any reference in the following provisions of this Chapter to any of those provisions of that Act is a reference to that provision so far as it has effect in relation to such non-trading profits or losses.
(3) For the purposes of subsection (2) above, any reference in the provisions there mentioned which falls to be construed as a reference to a qualifying company for the purposes of Chapter II of Part II of the [1993 c. 34.] Finance Act 1993 (exchange gains and losses) shall be construed as including a reference to a qualifying company for the purposes of this Chapter.
(4) Case VI of Schedule D shall for the purposes of corporation tax extend to companies not resident in the United Kingdom, so far as those companies are chargeable to tax on profits which, in the case of companies resident in the United Kingdom, fall within that Case by virtue of section 130 of the [1993 c. 34.] Finance Act 1993.
(1) This section applies where at any time (the relevant time) in an accounting period of a qualifying company—
(a) a qualifying contract held by the company is terminated,
(b) such a contract is disposed of by the company, or
(c) a contract held by the company is so varied as to cease to be such a contract.
(2) If, as regards the contract and the period, amounts A and B fall to be determined under section 155(5) above—
(a) there shall be deducted from amount A or, as the case may require, added to amount B so much of any qualifying payment as has not become due and payable to the company before the relevant time but has been included in amount A for the period or any previous accounting period, and
(b) there shall be deducted from amount B or, as the case may require, added to amount A so much of any qualifying payment as has not become due and payable by the company before the relevant time but has been included in amount B for the period or any previous accounting period.
Where, as regards a currency contract held by a qualifying company and an accounting period, amounts A and B fall to be determined under section 155(4) above—
(a) the amount of any exchange gain which as regards the contract accrues to the company for the period shall be deducted from amount A or, as the case may require, added to amount B; and
(b) the amount of any exchange loss which as regards the contract accrues to the company for the period shall be deducted from amount B or, as the case may require, added to amount A.
(1) Subsections (2) and (3) below apply in any case where—
(a) a qualifying company is entitled to a right to receive a qualifying payment, and
(b) the inspector is satisfied, on a claim made within two years after the end of an accounting period of the company, that the whole or any part of the payment outstanding immediately before the end of that period could at that time reasonably have been regarded as having become irrecoverable in that period.
(2) If, as regards the contract and the period, amounts A and B fall to be determined under section 155(4) above, an amount equal to so much of the payment as—
(a) is considered to have become irrecoverable in the period, and
(b) became due and payable in the period or any previous accounting period,
shall be deducted from amount A, or as the case may require, added to amount B.
(3) If, as regards the contract and the period, amounts A and B fall to be determined under section 155(5) above, an amount equal to so much of the payment as—
(a) is considered to have become irrecoverable in the period, and
(b) was allocated to the period or any previous accounting period,
shall be deducted from amount A, or as the case may require, added to amount B.
(4) In any case where—
(a) as regards a qualifying contract and an accounting period of a qualifying company, an amount has been deducted or added as mentioned in subsection (2) or (3) above, and
(b) the whole or any part of so much of the qualifying payment as was considered irrecoverable is recovered in a later accounting period of the company,
an amount equal to so much of the payment as is so recovered shall, as regards the qualifying contract and the later accounting period, be deducted from amount B, or as the case may require, added to amount A.
(1) Subsections (2) and (3) below apply in any case where—
(a) a qualifying company is subject to a duty to make a qualifying payment, and
(b) at any time in an accounting period of the company, the whole or any part of the payment then outstanding is released by the person to whom the duty is owed.
(2) If, as regards the contract and the period, amounts A and B fall to be determined under section 155(4) above, an amount equal to so much of the payment as—
(a) is released in the period, and
(b) became due and payable in the period or any previous accounting period,
shall be deducted from amount B, or as the case may require, added to amount A.
(3) If, as regards the contract and the period, amounts A and B fall to be determined under section 155(5) above, an amount equal to so much of the payment as—
(a) is released in the period, and
(b) was allocated to the period or any previous accounting period,
shall be deducted from amount B, or as the case may require, added to amount A.
(1) Subsection (2) below applies where, as a result of—
(a) a qualifying company entering into a relevant transaction on or after its commencement day, or
(b) the expiry on or after a qualifying company’s commencement day of an option held by the company which, until its expiry, was a qualifying contract,
there is a transfer of value by the qualifying company to an associated company or an associated third party.
(2) For the accounting period of the qualifying company in which the transaction was entered into or the option expired, there shall be deducted from amount B or, as the case may require, added to amount A an amount equal to the value transferred by that company.
(3) For the purposes of subsection (1) above there is a transfer of value by the qualifying company to an associated company or an associated third party if, immediately after the transaction or expiry—
(a) the value of the qualifying company’s net assets is less, and
(b) the value of the associated company’s or associated third party’s net assets is more,
than it would have been but for the transaction or expiry; and the amount by which the value mentioned in paragraph (a) above is less is the value transferred by the qualifying company for the purposes of subsection (2) above.
(4) Any reference in subsection (3) above to the value of a person’s net assets being less or more than it would have been but for the transaction or expiry includes a reference to the value of that person’s net liabilities being more or, as the case may be, less than it would have been but for the transaction or expiry.
(5) In applying subsection (3) above, no account shall be taken of any such payment as is mentioned in section 151(2)(a) or (b) above.
(6) A third party, that is to say, a person who is not an associated company, is an associated third party for the purposes of this section at the time when the relevant transaction is entered or the option expires if, at that time, each of the two conditions mentioned below is fulfilled.
(7) The first condition is that the relevant transaction is entered into or the option is allowed to expire in pursuance of arrangements made with the third party.
(8) The second condition is that, in pursuance of those arrangements, a transfer of value has been or will be made to an associated company (directly or indirectly) by the third party or by a company which was at the time when the arrangements were made an associated company of that party.
(9) Where it appears to the inspector that there is a transfer of value by the qualifying company to a third party, he may by notice in writing require the company, within such time (which shall not be less than 30 days) as may be specified in the notice, to furnish to the inspector such information—
(a) as is in its possession or power, and
(b) as the inspector reasonably requires for the purpose of determining whether the third party is an associated third party for the purposes of this section.
(10) Subsection (3) above shall (with the necessary modifications) apply for the purposes of subsections (7) to (9) above as it applies for the purposes of subsection (1) above.
(11) In this section—
“associated company” shall be construed in accordance with section 416 of the Taxes Act 1988;
“relevant transaction” means a transaction as a result of which—
a qualifying company becomes party to a qualifying contract, or
the terms of a qualifying contract to which a qualifying company is party are varied;
and any reference to an associated company is, unless the contrary intention appears, a reference to an associated company of the qualifying company.
(1) Subsection (2) below applies where subsection (2) of section 165 above applies and either—
(a) the transfer of value by the qualifying company is to an associated company which is itself a qualifying company; or
(b) the transfer of value by the qualifying company is to an associated third party, and the transfer of value mentioned in subsection (8) of that section—
(i) is to an associated company which is itself a qualifying company, and
(ii) results from that company entering into a relevant transaction.
(2) For the corresponding accounting period or periods of the associated company, there shall be deducted from amount A or, as the case may require, added to amount B an amount equal to the value transferred to the associated company.
(3) Subsection (3) of section 165 above shall (with the necessary modifications) apply for the purposes of subsection (2) above as it applies for the purposes of subsection (2) of that section.
(4) In subsection (2) above “corresponding accounting period or periods”, in relation to the associated company, means the accounting period or periods of that company comprising or together comprising the accounting period of the qualifying company in which the transaction was entered into or the option expired, and any necessary apportionment shall be made between corresponding accounting periods if more than one.
(5) In this section any expressions which are also used in section 165 above shall be construed in accordance with the provisions of that section.
(1) A transaction entered into on or after a qualifying company’s commencement day is a relevant transaction for the purposes of this section if as a result of the transaction—
(a) the qualifying company becomes party to a qualifying contract, or
(b) the terms of a qualifying contract to which the qualifying company is party are varied.
(2) Subsections (3) to (5) below apply where—
(a) if the parties to a relevant transaction had been dealing at arm’s length, the transaction—
(i) would not have been entered into at all, or
(ii) would have been entered into on different terms, and
(b) the Board direct that those subsections shall apply,
but subject, in a case falling within paragraph (a)(ii) above, to the modifications made by subsection (7) below.
(3) For each relevant accounting period for the whole of which the other party is a qualifying company, the following deductions shall be made—
(a) from amount B, a deduction of such amount as may be necessary to reduce amount B to nil, and
(b) from amount A, a deduction of such amount as may be necessary to reduce amount A to nil.
(4) For each relevant accounting period for any part of which the other party is not a qualifying company, the following deductions shall be made—
(a) from amount B, a deduction of such amount as may be necessary to reduce amount B to nil, and
(b) from amount A, a deduction of the same amount or (where that amount exceeds amount A) a deduction of so much of that amount as may be necessary to reduce amount A to nil.
(5) For each relevant accounting period (except the first) for any part of which the other party is not a qualifying company, there shall also be deducted from amount A or, as the case may require, added to amount B such amount as may be necessary to secure that amount C does not exceed amount D where—
(a) amount C is any amount by which the aggregate of adjusted amounts A exceeds the aggregate of adjusted amounts B, and
(b) amount D is any amount by which the aggregate of unadjusted amounts A exceeds the aggregate of unadjusted amounts B.
(6) In subsection (5) above—
“adjusted” means adjusted under subsections (4) and (5) above and “unadjusted” shall be construed accordingly;
“the aggregate of adjusted amounts A”, in relation to a relevant accounting period, means the aggregate of—
adjusted amount A for that period, and
adjusted amount A for each preceding relevant accounting period,
and similar expressions shall be construed accordingly.
(7) In a case falling within subsection (2)(a)(ii) above—
(a) subsections (3) to (5) above shall have effect as if any reference to amount A or amount B were a reference to the relevant proportion of that amount; and
(b) the definitions in subsection (6) above of “the aggregate of adjusted amounts A” and similar expressions shall have effect as if any reference to adjusted amount A were a reference to the adjusted relevant proportion of amount A;
and in this subsection “the relevant proportion” means such proportion as may be just and reasonable having regard to the differences between the terms mentioned in subsection (2)(a)(ii) above and the terms on which the relevant transaction was actually entered into.
(8) In applying subsections (2) and (7) above—
(a) no account shall be taken of any transfer of value in respect of which an adjustment is made under section 165 or 166 above, but
(b) subject to that, all factors shall be taken into account.
(9) The factors which may be so taken into account include—
(a) in a case where the qualifying contract is an interest rate contract or option, any notional principal amounts and rates of interest that would have been involved;
(b) in a case where the qualifying contract is a currency contract or option, any currencies and amounts that would have been involved; and
(c) in either case, any transactions which are related to the relevant transaction.
(10) In this section “relevant accounting period”, in relation to a relevant transaction, means—
(a) the accounting period of the qualifying company in which the transaction was entered into, and
(b) each subsequent accounting period of that company for the whole or part of which it is party to the contract.
(1) Subject to subsections (3) to (5) below, subsections (4) and (5) of section 167 above (“the relevant subsections”) also apply where, as a result of any transaction entered into on or after a qualifying company’s commencement day—
(a) the qualifying company and a non-resident, that is, a person who is not resident in the United Kingdom, both become party to a qualifying contract;
(b) the qualifying company becomes party to a qualifying contract to which a non-resident is party; or
(c) a non-resident becomes party to a qualifying contract to which the qualifying company is party.
(2) For the purposes of the relevant subsections as so applied, the definition of “relevant accounting period” in subsection (10) of that section shall have effect as if—
(a) any reference to a relevant transaction were a reference to the transaction mentioned in subsection (1) above; and
(b) in paragraph (b), for the words “it is” there were substituted the words “both it and the non-resident are”.
(3) The relevant subsections shall not apply where the qualifying company is a bank, building society or financial trader and—
(a) it holds the qualifying contract solely for the purposes of a trade or part of a trade carried on by it in the United Kingdom, and
(b) it is party to the contract otherwise than as agent or nominee of another person.
(4) The relevant subsections shall not apply where—
(a) the non-resident holds the qualifying contract solely for the purposes of a trade or part of a trade carried on by him in the United Kingdom through a branch or agency, and
(b) he is party to the contract otherwise than as agent or nominee of another person.
(5) The relevant subsections shall not apply where arrangements made with the government of the territory in which the non-resident is resident—
(a) have effect by virtue of section 788 of the Taxes Act 1988, and
(b) make provision, whether for relief or otherwise, in relation to interest (as defined in the arrangements).
(6) Where the non-resident is party to the contract as agent or nominee of another person, subsection (5) above shall have effect as if the reference to the territory in which the non-resident is resident were a reference to the territory in which that other person is resident.
(1) Subject to the provisions of Schedule 18 to this Act and subsection (2) below, this Chapter shall apply in relation to insurance companies and mutual trading companies as it applies in relation to other qualifying companies.
(2) The Treasury may by regulations provide that this Chapter shall have effect in relation to currency contracts held by insurance companies with such modifications as may be specified in the regulations.
(3) Regulations under subsection (2) above may make different provision as respects contracts held for different purposes or in different circumstances.
(1) For the purpose of determining whether a qualifying company may be approved for the purposes of section 842 of the Taxes Act 1988 (investment trusts) for any accounting period, any non-trading profits which the company is treated for the purposes of section 160 above as having for that period shall be treated as income derived from shares or securities.
(2) In this section “shares” has the same meaning as in section 842 of the Taxes Act 1988.
(1) Section 505 of the Taxes Act 1988 (charities: general) shall have effect, in relation to any qualifying company established for charitable purposes only, as if the reference in subsection (1)(c)(ii) to any yearly interest or other annual payment included a reference to any annual profits or gains which the company is treated as receiving in any accounting period by virtue of section 130 of the [1993 c. 34.] Finance Act 1993 (non-trading exchange gains: charge to tax).
(2) As regards a qualifying company so established, no part of the relievable amount for any accounting period may be set off against any income which, if it had been applied for charitable purposes only, would have been exempt by virtue of section 505 of the Taxes Act 1988.
(3) In subsection (2) above “the relievable amount” has the same meaning as in section 131 of the [1993 c. 34.] Finance Act 1993 (relief for non-trading exchange losses).
(1) Subject to the provisions of this section, this Chapter shall have effect as if qualifying partnerships were qualifying companies.
(2) A partnership is a qualifying partnership for the purposes of this section if one or more of the partners are qualifying companies.
(3) Subsections (4) to (6) below apply where—
(a) one or more of the members of a qualifying partnership are not qualifying companies, and
(b) as regards one or more qualifying contracts, one or more profits or losses accrue to the partnership for an accounting period.
(4) Two computations of the profits and losses for the period shall be made under subsection (1) of section 114 of the Taxes Act 1988 (partnerships involving companies: special rules for computing profits and losses)—
(a) one (the first computation) on the basis that the partnership is a qualifying partnership, and
(b) the other (the second computation) on the basis that the partnership is not such a partnership.
(5) The first computation shall be used for the purpose of determining, under subsection (2) of that section, the share or shares of such of the partners as are qualifying companies.
(6) The second computation shall be used for the purpose of determining, under that subsection, the share or shares of such of the partners as are not qualifying companies.
(1) Subsection (2) below applies to any amount—
(a) which under or by virtue of this Chapter is chargeable to corporation tax as profits of a qualifying company, or
(b) which falls to be taken into account as a receipt in computing for the purposes of this Chapter the profits or losses of such a company.
(2) An amount to which this subsection applies—
(a) shall not otherwise than under or by virtue of this Chapter be chargeable to corporation tax as profits of the company,
(b) shall not be taken into account as a receipt in computing for other purposes of the Tax Acts the profits or losses of the company, and
(c) for the purposes of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992, shall be excluded from the consideration for a disposal of assets taken into account in the computation of the gain.
(3) Subsection (4) below applies to any amount—
(a) which is allowable as a deduction in computing for the purposes of this Chapter the profits or losses of a qualifying company, or
(b) which under or by virtue of this Chapter is allowable as a deduction in computing any other income or profits or gains or losses of such a company for the purposes of the Tax Acts, or
(c) which, although not so allowable as a deduction in computing any losses, would be so allowable but for an insufficiency of income or profits or gains;
and that subsection applies to any such amount irrespective of whether effect is or would be given to the deduction in computing the amount of tax chargeable or by discharge or repayment of tax or in any other way.
(4) An amount to which this subsection applies—
(a) shall not be allowable as a deduction in computing for other purposes of the Tax Acts the profits or losses of the company,
(b) shall not otherwise than under or by virtue of this Chapter be allowable as a deduction in computing any other income or profits or gains or losses of the company for the purposes of the Tax Acts,
(c) shall not be treated as a charge on income for the purposes of corporation tax, and
(d) shall be excluded from the sums allowable under section 38 of the [1992 c. 12.] Taxation of Chargeable Gains Act 1992 as a deduction in the computation of the gain.
(5) In this section—
(a) references to the purposes of this Chapter include references to the purposes of subsections (5), (6) and (9) of section 129 and sections 130 to 133 of the [1993 c. 34.] Finance Act 1993 (non-trading exchange gains and losses), and
(b) references to other purposes of the Tax Acts are references to the purposes of those Acts other than those of this Chapter.
Finance Act 1994